7 ot g (4 complete) Score: 36.67%, 3.67 of 10 pts E10-23A (similar to) Question

Question

7 ot g (4 complete) Score: 36.67%, 3.67 of 10 pts E10-23A (similar to) Question Help * Cleary Ceramics, a division o Kerwin Corporation, has an operating income of S85,000 and total assets of $425 The required rate ofrenm fy the company is 10%. The company s ovaluating whether it should use return on investment Ron or residual income Ri as a measurement o performance for its dinsion managers The manager of Cleary Ceramics has the opportunity to undertake a new project that will require an investment of $175,000. This investment would earm $24,500 for the company. Read the requirements Operating incoment Total assets x Target rate of return)= (Use parentheses or a minus sign for a negative RI.) The residual income (R) for Cleary Ceramics i this investment opportunity were to be undertaken is 9,500 If the manager of this division is evaluated based on RI she would want to make this investment. The posiltive RI indicates that the division is eaming motre than managements expectations Requiremont S. What s the Rt f the investment opportunity? Would the investment be desirnable from the standpoint of Kerwin Corporation? Why ar why not? (Use parentheses or a minus sign for a negative RI.) The Ri of the investment opportunityis s Enter any number in the edit fields and then click Check Answer Check Answer Clear All

Explanation / Answer

Operating income-(Total assets*Target rate of return) = RI RI of the investment opportunity = 24500-(175000*10%)= 7000 Yes, the investment would be desirable as it has positive RI so it is earning more than company's target rate of return

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